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rolls royce (LSE:RR.) Stocks have been a stellar investment in 2023. The aerospace and defense business delivered strong financial results for fiscal 22, sending the stock price soaring. So far, his earnings are unmatched by any other FTSE 100 company.
Fortunately, I invested in stocks before the good news broke and I am currently making healthy gains.
So how much would a £1,000 investment in Rolls-Royce have made since the start of the year? We are going to explore.
return 2023
Rolls-Royce’s share price is up nearly 53% this year to date. That’s a remarkable comeback for a stock that was trading in pennies for much of the pandemic.
With £1,000 to invest at the start of the year, you could have bought 1,011 shares at 98.91 pence each. At today’s price of 151.12 pence, my share would be valued at £1,527.82.
That’s a notable gain, but the short timeframe does the company a bit flattery. Many longer-term investors are still in the red. For example, those who bought shares five years ago would now have a share worth less than half of their initial investment.
Despite a recent positive set of earnings, this is a stark reminder that the company faces a long journey to return to full financial health.
Stock prospects
Looking ahead, the company’s guidance for 2023 suggests Rolls-Royce is confident it can build on last year’s impressive performance. The operating profit forecast is £0.8bn to £1bn, compared with £0.65bn in 2022.
In addition, the company expects to generate £600-800m in free cash flow, up from £510m last year. Hitting this target will be critical if earnings are to be sustained, especially as the £3.3bn net debt on the company’s books remains a concern.
Rolls-Royce has three main sources of revenue, which totaled £12.7bn across all divisions of the company last year.
| rolls royce division | Underlying Revenue Percentage |
|---|---|
| civil aerospace | Four. Five% |
| Defending | 29% |
| power systems | 26% |
The company’s bullish guidance for 2023 is based on large-engine flight hours returning to 80-90% of 2019 levels. Sounds like a blunt target, but January data from the International Air Transport Association (IATA) are showing positive momentum in the travel industry, with international traffic reaching 77% of January 2019 levels.
Rolls-Royce’s Defense arm is benefiting from heightened geopolitical tension caused by the war in Ukraine. The US and UK governments collectively represent 75% of the company’s customer base for this division. A focus on defense spending in both countries bodes well for business.
Finally, the company’s Power Systems division continues to show strength. 2022 was a record year for the order book and order intake. Growing demand for low-carbon technologies should help the company, which has increasingly focused on hydrogen engines and other sustainable solutions.
Should I buy more, hold or sell?
Overall, the outlook for Rolls-Royce’s share price looks positive to me. However, there are notable risks. The debt is obvious. Also, there is a chance that investors could take profit after the recent rise, which could send the stock lower in the near term.
I feel comfortable with my position at this time and will maintain my participation. If big declines materialize as the year progresses, I will consider investing more.
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